I know, I know. This doesn’t seem like the most exciting post I’ve done yet, but before you switch over to your FaceBook account, think back to the last time someone asked you what oil and gas accounting software is?

Not easy to remember, right? Probably because your answer wasn’t so stellar. Today I’m taking over for Webster’s Dictionary and try to re-define (because it doesn’t exist for Mr. Webster) and perhaps even explain exactly what it is that we create at SherWare.

The obvious answer is that we create and support accounting software for the oil and gas industry. Clearly, in a broad sense that is how our software is intended to operate, but anyone in the industry knows how complex it can get, especially when you start throwing out words like upstream and downstream and terms like net and joint interest billing and AFEs.

In several posts over the next couple of weeks, we’ll also take a look at why our client’s think someone should use an oil and gas accounting program and what tips they have for picking the right software for your business.

So let me start at the beginning and break it down, piece by piece, what the new definition of oil and gas accounting software is, how oil and gas accounting software is designed to work and what type of businesses it is intended for.

First things first. The oil and gas industry is split into two main sectors: downstream and upstream.

Downstream refers to the oil and gas operations that take place after production all the way up to the point-of-purchase, whether it is at your local gas station or for fuel heating your home.

Upstream refers to the actual exploration and production of gas from surveying land to drilling and producing wells.

SherWare’s oil and gas accounting software is intended for those in the upstream sector who are beginning to drill and produce wells and need to track the production and revenue that’s brought in for that well and then distribute it to the investors.

The software then is used to help you track all of your wells, owners (investors) and their interests. As you begin to accumulate expenses and hopefully revenue from the wells, the software allows you to automatically allocate those expenses and incoming revenue between your investors according to their division orders, and then distribute that revenue or send invoices for the expenses, once you’ve entered your production receipts, invoices, bills, etc. into the software.

The old definition would look something like all the features I’ve been spouting above. The new definition of oil and gas accounting software is this: software to simplify how your company handles all aspects of exploring, producing, and distributing revenue and expenses for oil and gas wells so your business can continue to grow.

Now that we’ve got that redefined, let’s break down the software by what features are offered to help you get to that definition personally. To see a visual explanation of the differences between our three software products, check out our product flow chart.

General Ledger – This is typically the “brains” of the accounting side of the software where you can create and customize your chart of accounts. This is where accountants go crazy with checking double-sided entries and making sure debits and credits are all accounted for. If you use the Integrated Edition of the software, you won’t have to deal with this as it’s included in your QuickBooks software.

Accounts Payable – Any purchases your company makes from vendors as well as outstanding payments to those vendors will be tracked in the software’s Accounts Payable system. If the expense is well-related, it will then be distributed among the owners/investors of the well.

Revenue Distribution – Any income your wells generate will need to be distributed at some point to the investors/owners of the well. This part of the software allows you to track production receipts received for oil and gas and then automatically split that up among the investors according to their division orders for each specific well that has income.

Joint Interest Billing – In the oil and gas industry there are two ways to distribute your revenue and expenses among investors. One is to “Net” the expenses from the revenue and if there is a surplus, the owner is cut a check at the end of the month or distribution period, and if there is a deficit, they will receive an invoice for the amount of expenses not covered by the well’s revenue.

The other way is by joint interest billing. This is when an investor is cut a check for the entire amount of their share of revenue the well(s) received and then also sent a Joint Interest Billing Statement (JIB) which is an invoice for their entire share of the expense incurred so far.

Within our software, you can set up your wells and owners to be either, depending on your preference, and not all wells or owners have to be net or JIB owners.

Depending on your company’s operations, you may also be interested in other features such as:

Payroll – This module allows you to keep track of hours and salary and pay employees.

Land Management – Every oil and gas software program I’ve seen has a different take on what the Land Management part of the software should feature. Right now we have a simple approach to Land Management and use this feature to allow you to track your lease obligations and delay rental payments.

Authorization for Expenditure (AFEs) – Most wells won’t get very far without investors. Create an AFE to show your investors what you think the estimated costs will be for drilling or working over a particular well. Track the actual versus estimated costs within the software program to see if the well is going as projected.

House Gas – Track and bill usage for homeowners who are using your gas.

That pretty much sums up the main features that your oil and gas accounting software can offer to help you reach the new definition of what the software is and how it can help your business reach its potential. As you can tell from the various features available, you can customize your software to handle whatever aspects of the industry that you need.